To know what the broadband industry is going to do tomorrow, just look at what the cellular industry is doing today.
Year after year, several key cellular carriers and vendors have systematically acquired or merged with competitors to form vast corporations offering diverse product and service portfolios.
And so it seems the wireless broadband industry is traversing the same path, except more rapidly, as factors such as the stock market slump and the increase in demand for bandwidth push companies-especially equipment providers-into diversifying in order to survive.
“I think it’s (the wireless broadband industry) really setting itself up to consolidate,” said Tom Kuchler, director of strategic marketing, broadband wireless access, Nortel Networks. “If you look in the millimeter wave space, and you see companies out there that have some interesting technology, you kind of wonder whether they will continue to exist. It’s a difficult business to execute on.”
The industry has seen a smattering of acquisitions, including on the vendor side, Alcatel’s $7.1 billion acquisition of Newbridge Networks Inc. around this time last year, and on the carrier side, XO Communications Inc.’s (then known as Nextlink Communications Inc.) acquisition of WNP Communications Inc.’s 39 A-block and one B-Block local multipoint distribution service licenses for $695 million in January 1999. According to Scott Pace from XO, WNP bought the licenses with the intent to resell.
More recently, Western Multiplex Corp. attempted to acquire Adaptive Broadband Corp. for $645 million, but terminated the deal after the two companies failed to agree on a share price. The value of Adaptive Broadband’s stock had dropped off significantly since the acquisition talks began.
Wall Street certainly can toy with the scope and scale of a company’s acquisition activity, and according to James McIlree, senior vice president of research at Tucker Anthony Capital Markets in New York, an ailing stock market makes for prime merger and acquisition breeding ground.
“We’re in an environment that’s ripe for that (acquisitions)…, ” McIlree said.
“It just seems that in a weak environment and weak stock prices, the companies who are short on product line or short on management or short on access to the market, many of those companies will need to partner up with equal-size companies to expand their talent and access to the market,” he added.
Vendors that don’t have direct access to the consumer market are more vulnerable to acquisition or bankruptcy.
“If you don’t have access to the consumer, who cares? As a vendor, you need to have access to companies that have access to consumers,” said McIlree. “The technology itself is less important than access to the market.”
There is an incredibly fine line between a stock market that helps, and one that hurts, however, as evidenced by the Western Multiplex/Adaptive Broadband deal. Both companies’ share prices had dropped to a level where there was little incentive for Adaptive Broadband to sell and Western Multiplex to buy.
Looking ahead, McIlree doesn’t see the market improving, at best, until the second half of the year, or until the CLECs can get funding.
For carriers, the idea of consolidating is a bit less daunting. Winstar Communications Inc., Teligent Inc., Advanced Radio Telecom Corp. and XO are still trying to build out the LMDS markets they have, which is consuming monetary and labor resources at the moment. Multichannel multipoint distribution services carriers WorldCom Inc. and Sprint Corp. also have internal interests to tend to, and any talk of acquiring what’s left of the MMDS license holders such as Nucentrix Corp., is yet to be revealed.
Kuchler said he believes there will only be four major LMDS carriers in a few years, and the vendors that can provide equipment on a global scale, whether large or small now, will experience longevity and independence.
